ChampionX Earnings: Short-Lived Headwinds Offset Otherwise Favorable End-Market Dynamics

ChampionX CHX performed well in the second quarter despite headwinds from numerous external sources, including production shutdowns relating to Canadian wildfires and logistics-related shipment delays in Latin America, as well as decelerating activity across North America. ChampionX’s profitability improved despite a modest sequential revenue decline of 2%, with the firmwide adjusted EBITDA margin expanding nearly 160 basis points quarter over quarter. Few challenges from second quarter will likely carry over into the second half of the year, but we expect overall modest performance improvements in the future, as constrained North American activity offsets growth in international markets. Our $33 per share fair value estimate and no-moat rating are therefore unchanged.

Nearly two thirds of ChampionX’s overall business involves the notoriously volatile North American market. The firm has made significant strides in stabilizing overall profitability through strategic portfolio adjustments, specifically within its reservoir chemical technologies segment. Divested product lines from RCT represented less than 2% of firmwide revenue in the second quarter of 2022, yet RCT drove nearly 10% of incremental adjusted EBITDA year over year.

The remaining profitability improvements comprises pricing gains with the production chemical technologies and automation technologies segments, mostly due to a favorable pricing environment. Pricing in North America is generally very short-term, with average contract durations spanning less than six months on average, so we expect pricing will remain a highly cyclical component of ChampionX’s operations over the long run.